How Does a Smart Contract Handle a Bond Default or Bankruptcy Scenario?

A smart contract for a bond can be programmed to handle default scenarios automatically. If the issuer fails to deposit funds for a coupon payment by the due date, the smart contract can automatically trigger a "default" state.

This state could be programmed to transfer control of any locked collateral to the bondholders or to a predefined trustee. In a bankruptcy, the smart contract would likely be subject to external legal proceedings, but its transparent record of ownership and payments would provide clear, indisputable evidence for the court and administrators to use in the claims process.